Asset Allocation Historical Performance

 

Source: FRED Data, JQR Capital

Asset Allocation Historical Performance

Last time we examined the accuracy of investment “experts” (AKA market gurus) in predicting the future movements of the stock market. Numerous studies have shown that very few of these experts were able to accurately add value when compared to the proverbial coin toss over a long period of time. In this post we are going to simplify our asset allocation back to our two risky asset cases - stocks vs. bonds (and combinations thereof). The chart shown above displays the historical performance for several combinations of stocks and bonds over the last 50 years. It is no surprise that a 100% stock portfolio turned $1 into almost $156 and that a 0% stock (100% bond) portfolio was the least effective in generating wealth over that time period.

Introducing the 60/40 Portfolio 

One thing you may notice is that every portfolio tracked in the chart shown above gained a significant amount of money over the 50 year time period. Another observation is that every one of these allocations also lost money for certain periods of time on its way to significant wealth. We are now going to single out one of these portfolios because it is often cited as the “optimal” portfolio for the average investor by the popular financial media - the 60/40 portfolio. This fixed allocation of 60% stocks and 40% bonds is shown in gold in our first chart. The real question is: just how optimal has the 60/40 portfolio been over time? The fixed portfolio allocation over time is often referred to as a strategic asset allocation (SAA) process. Using an SAA approach, the investor portfolio is rebalanced (AKA traded) back to the SAA (like 60/40) at planned (yearly, quarterly, or monthly) dates.


An alternative approach to using SAA is the concept of a tactical asset allocation (TAA) process. Our old friend, the market portfolio (MP) is one example of a TAA process. We introduced the MP concept back on January 24. In our next blog post, we will compare the 60/40 SAA to at least one TAA process over time. Please stay tuned!

 

How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case. - Robert G. Allen


JQR Capital offers you a complimentary one hour consultation to “Find Your Bearings” in your lifelong financial voyage. Please click the link shown below to accept this offer.


Disclaimer

Past performance is no guarantee of future results. Any investment involves some amount of risk and may not be suitable for all — or any — individuals. You should consult with your investment advisor before acting on this — or any — financial information.

References

https://fred.stlouisfed.org/

https://www.brainyquote.com/

https://jqrcapital.blogspot.com/2024/01/adding-cash-position.html


Copyright © 2024 JQR Capital Management, LLC
Location: 23 Foxridge Rd, West Hartford, CT 06107, USA

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